Apologies, but I keep forgetting to put these two statements side by side:
Apple single-handedly erased a drop in S&P 500 earnings for the December quarter. Excluding Apple’s Jan. 24 results, earnings had declined 4.2 percent for the other companies that had reported.
The DOE reported Wednesday that total fuel demand in the U.S. fell to 17.6 million barrels a day last week, a 12-year low.
In my view, the essential question is whether the entire US economy can be held up by virtual money printing and virtual gadgets. Can it?
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.
A few points in favor of a softer "landing" than I believed possible a few months ago.
The P/E has dropped dramatically, overvaluations are still present, but not on the scale they were a couple of years ago.
The real value of the economy does increase over time, so real value does tend to catch up in a market that keeps revolving between the same numbers for an extended period.
The FED doesn't seem to be under any pressure to pull money out of the economy in a vast hurry, inflation pressures are still quite low, and a degree of liquidity is still present.
Company buy backs have hugely reduced the amount of stock available on the market, thereby driving up values per share. The market isn't the economy, but we might manage a drop only to the 4000-5000 range vs a drop to 1250 as I expected three years ago.
Finally, we are seeing some very hopeful signs. The US moving to energy independence is a very good thing for the balance of trade. The movement of factories back towards the US is a good sign, and the POTUS being called down over H1-B's indicates we may just see that program finally curtailed and the misuse of it to train Indians to return to India and take entire industries with them come to an end.
I'm not saying things are looking fine or anything like that, we've got issues that are huge. But I do see hopeful signs, and it's been a while since I've seen any of those. I think that Europe is the joker in the deck for the near term, I don't see any way out of that mess short of cutting Greece and Italy loose from the EURO. Over the longer term (more than a year or two) I think we've got federal budget issues that have to be addressed in some manner, and that can't be put off much longer at all.
But honestly, none of us thought it would hold together even this long. I'm frankly amazed.
One of the reasons that factories that formerly outsourced their material and employees to China are returning is because China looks much less stable than it did just a few years ago. When you've got well over 100,000 mass incidents per year, many of which are worse than the most brutal riots we've seen in Europe, it doesn't look like a real safe investment anymore.
Whether or not our anemic growth continues or we go into another recession depends a lot on what is currently happening in Europe. I'd add China to that list, but I don't think they're going to have an outright collapse this year, although their robust economic growth will continue to slow.
But honestly, none of us thought it would hold together even this long. I'm frankly amazed. Also in that camp
We are humble investors and it is not our occupation to sling judgmental Shinola. But it is undeniable that we exist,as do you, and therefore have a stake in the actions of fired-up world improvers oddly wired to believe unequivocally that motion is progress while demonstrating great finesse in assuring a minimum gets done. As you opened this piece not for a cynical (and increasingly trite) rant about the absurdities of contemporary authority but, we imagine, for a somewhat reasoned assessment of macroeconomic circumstances and how they may relate to makin’ money, we will try to calm our Tourette’s for a couple of thousand words. No guarantees, of course. http://www.scribd.com/doc/81223579/QBAM ... h-I-and-II
Last edited by aedens on Mon Feb 13, 2012 7:22 am, edited 4 times in total.
I'm starting to wonder why I bother trying to warn anyone. I keep hearing: "we have reserves; we're not even any real trouble." This is generally from Boomers, who blow me off when I try to explain these kinds of things. Guess they're going to have to learn the hard way.
With the subject of the economy, I start my analysis with the amount and sustainability of US government borrowing. They borrowed all they could up front and threw an extra approximately $1.5 trillion per year into the US economy. What does that mean? I think it means that GDP was kept level and the overall debt was kept level per the charts posted a few weeks back by John and me. So it cost $1.5 trillion per year to bring GDP and profits back to 2007 levels, but not real estate. Now today Bernanke is telling us that real estate is a problem.
As to whether I thought that would be possible, no, I did not think that would be done or, even if it had been, that it would work because there were too many cracks in the dike. But we can notice that even though it pops up every so often that Illinois and California are broke there are no defaults.
Going forward, if everything else is equal (which I don't think it is but that may not matter), can the US continue to borrow $1.5 trillion per year or can the economy now begin to go back to its old self if any part of that $1.5 trillion is removed?
First, the sustainability of continuing to borrow at those rates. Bernanke said it correctly just recently. He said we can't do it because one day interest rates will rise and that's the end. I think he's right about that and no more need be said.
I think people instinctively and rightly understand that some of the recovery equation depends on what happens in Europe and Asia and those trends are not positive. However, on net, and I think people have this right too, overall growth between Europe and Asia can be net positive provided Europe holds together.
As far as energy and Apple, a company like Apple is a huge positive to the US economy because with decreased energy usage, the only way to grow the economy is with low energy intensive businesses. The extent to which this has happened is what I predicted would not be possible. Normally, in the old economy, with constant energy usage, the expected growth rate would be 2% max due to the fact that efficiency of energy conversion to GDP can increase at about that rate due to technological improvements.
As rough numbers, taking 20 million barrels per day 5 years ago and 17.6 million barrels per day now, that' s a 2.6% per year compounded decline. If you had told me this 5 years ago, I would have said GDP growth would be -0.6% right now at best. For the previous quarter, minus inventory build, it was 0.9%. Technology is giving us an extra 1.5% with the tail wind of government borrowing. This seems about right to me.
However, when the truth is known some months from now, I think it will be seen that the economy is growing/shrinking at a 0% rate at present.
As far as the stock market goes, I agree with those who say this is an extended bubble and mean reversion will take it down lower and longer due to the extension of the bubble. I expect the stock market to go to zero but it will be a long and bumpy ride to the bottom and that can't be considered a serious forecast for what we are discussing here. Maybe Dow 4-5,000 in 2013, but I see very little recovery off of that.
Last edited by Higgenbotham on Sat Feb 11, 2012 1:50 am, edited 2 times in total.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.
I happen to live in California and I'm seeing it completely fall apart. This stopped being the Golden State about 20 years ago. We're not in the condition Greece is, but we're about what Italy is, and since it's the most populated state, if something happen here, it's more than big enough to fall apart.
Our interest rates are low in part because of what's going on in Europe. Even though we've got major problems, we still look safe compared to a European implosion. If we stop looking that way, interest rates will start rising again.
Trevor wrote:I'm starting to wonder why I bother trying to warn anyone. I keep hearing: "we have reserves; we're not even any real trouble." This is generally from Boomers, who blow me off when I try to explain these kinds of things. Guess they're going to have to learn the hard way.
No they have behaviorally informed Keynesianism to guide you.
Last edited by aedens on Mon Feb 13, 2012 7:23 am, edited 3 times in total.
Trevor wrote:Our interest rates are low in part because of what's going on in Europe. Even though we've got major problems, we still look safe compared to a European implosion. If we stop looking that way, interest rates will start rising again.
Yes, excellent points. With regard to technology, Europe, etc., we are in that happy middle ground. Oddly enough, if Apple were to become "too successful" I believe the economy would fall apart.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.
I'm still expecting them to go up this year. Not to the level of Portugal or even Spain, but I could see our 10-year bonds going to 4 percent or so.
I just looked at the Credit Default Swaps and from the looks of how much it'll cost to ensure their debt, Portugal is where Greece was less than six months ago. They're next on the list.